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Edited Transcript of ACX.MC earnings conference call or presentation 28-Feb-19 9:30am GMT

Full Year 2018 Acerinox SA Earnings Call

Madrid Mar 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Acerinox SA earnings conference call or presentation Thursday, February 28, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Antonio Moreno Zorrilla

Acerinox, S.A. - Former Production Director

* Bernardo Velázquez Herreros

Acerinox, S.A. - CEO & Executive Director

* Carlos Lora-Tamayo

Acerinox, S.A. - Head of Investor & Media Relations

* Daniel Azpitarte Zemp

Acerinox, S.A. - Former Commercial Director & Sales Director

* Miguel Ferrandis Torres

Acerinox, S.A. - Chief Financial Director

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Conference Call Participants

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* Francisco Riquel

Alantra Equities Sociedad de Valores, S.A., Research Division - Head of Research

* Francisco José Rodríguez Sánchez

Banco de Sabadell. S.A., Research Division - Research Analyst

* Luke Nelson

JP Morgan Chase & Co, Research Division - Research Analyst

* Robert Jackson

Grupo Santander, Research Division - Equity Analyst

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Presentation

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [1]

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Good morning, and welcome to the event on financial statements for Acerinox 2018. First of all, our Chairman, Rafael Miranda has apologized. He has been unable to make it. He is not attending. We will have our CEO, Mr. Bernardo Velázquez accompanied by the rest of the senior management. We have also Miguel Ferrandis; CFO and Daniel Azpitarte, Sales Director; to his left, we Luis Gimeno from General Counsel; and Antonio Moreno, Production Director.

We would like to thank all of you for coming here today, especially during a complicated day, because there are many other Spanish companies making their public announcements on their financial performance. So I would like to thank you on behalf of Acerinox.

Let me remind you that the event can be followed in real-time using your mobile phone or through our website acerinox.com. In our website, you will be able to check the annual report with the management and the consolidated annual report, very detailed information about 2018. As always, the CFO will recommend that you pay attention to the details. Last but not least, we would like to encourage you after the event to remain here for a while. We will have a cocktail outside.

And without further ado, I now yield the floor to the CEO Mr. Bernardo Velázquez.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [2]

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Thank you, Carlos. Good morning everyone, and thank you for coming. I'd like to apologize again on behalf of our Chairman Mr. Rafael Miranda. He is connected to us despite the time in New York, it's 3:00 a.m. there. So first of all, we would like to mention the evolution of accident rates. We would like our environment to be as safe as possible. And this year we have broken a new record. We have moved down this to 2.2. We will keep working in the same direction. We have a long way to go ahead of us. But we had no severe accidents in 2018.

These are the main financial figures for the year. Our turnover exceeded EUR 5 billion -- EUR 5.011 billion with an EBITDA of EUR 480 million, very close to the previous figure, 2% under the previous figure, in fact. EBIT is EUR 310 million with EUR 237 million in results after taxes and minorities. We have been working on our debt. Net financial debt is EUR 552 million with a net financial debt of EUR 1.15 million, and 26% net financial debt. The cash flow has been very strong, EUR 171 million. I think these are the topics we wanted to focus on. These are the key elements in our performance for 2018.

We've been reacting very quickly to adverse market conditions or positive market conditions. We've been able to react very quickly to a business that is getting more volatile, whilst achieving positive performance in a complicated environment and ensuring the generation of solid cash flow, and achieving a healthy balance.

As regards performance for the fourth quarter, this is a bit of a mixed bag because of the situation we had in the last -- 3 months of last year. Most of you attended the announcement. The event in [Inoxcenter] in Southern Spain, where we were expecting a better situation for the end of the year. We saw much higher volatility than expected. The real markets or physical markets are getting more and more similar to financial markets and we saw a very close correlation with financial markets in the last quarter.

The main elements to consider here are basically the strong apparent demand correction in Europe, but in all markets in general. We saw a downtrend in raw material prices, nickel going down from June all the time and high inventory levels. These are factors that affect our business and our markets in a negative way and they all appeared towards the end of the year. So we had a high degree of uncertainty. We saw fears about the end of the cycle in a very quick way.

In May of last year, during our shareholder meeting, we were mentioning that we were growing everywhere throughout the world. We were saying that all markets throughout the world were growing in a homogeneous way -- in a consistent way, with moderate growth rates. And that was the consensus at that time. We believe -- we felt the growth was stable and yet from June on everything changed. Everyone started talking about the opposite, about potential recession or downturn in the world economy. Chaos came along. And to give you some figures. Our apparent consumption in the second half of the year went down by 6% compared to the second half of 2017 and it went down by 17% compared to the previous half of the year.

As regards markets in Europe, what we have seen is provisional safeguard measures. Conceptually speaking, they were good enough, but they were not applied properly in our opinion. This is coupled to the elements that we saw before. There was high input pressure on historically low base prices, something that had never been seen before in Europe.

Talking about the U.S., we saw the seasonal slowdown from Thanksgiving all the way through Christmas. 2 months of work basically. There were there were quite a few changes in the market and based prices were stable.

In Asia, the environment was very complicated, especially complicated in the last quarter with new players coming along, high import rates, changes in conventional market flows, thereby contributing to overcapacity with historically low prices and oversupply.

How have we reacted in the last quarter at Acerinox? Well, the first thing I would like to mention is the robust margins we still have in the U.S., unlike what we found in Europe and in Asia. We had an inventory adjustment of EUR 22 million at the end of the year so that we could be ready for the next year. But we reacted very quickly.

As I said before, we have adapted ourselves to the new market conditions. We have managed very well our working capital. We have adjusted production to market and we have generated cash in a very strong way. We haven't broken the records in production, but we have been quite diligent. We have decided to compensate by affecting EBITDA in negative but achieving significant debt reduction and effective cost control in a complicated situation.

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [3]

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In a graphical way, these are the aspects that our CEO has just touched upon. Here we show the evolution of the different quarters during last year. And as Carlos mentioned, during his presentation, all figures and all details are included in the annual reported, in the financial statements. They have been audited and they are available in our website. We have made considerable efforts to ensure that we have the audit completed by the time this event is organized. And that is why it has allowed us to include every single detail for all figures. We will probably mention later on those parts of the consolidated annual report or the management report that reflect upon the situation we have just described.

Talking about production, you see it very clearly in that chart, top-left. You can see that we had a production of 617,000 tonnes in the third quarter. We have reduced that significantly going down to 516,000 during quarter 4. We have reduced the inventory in the group. That was one of our priority goals and that has consequences. Of course, reducing production has consequences in some of the factories. And I'm talking about Acerinox Europe and Columbus. We had costs, expenses on some activity. So this is a cut in total production and this has an impact on our P&L. Our estimate gives us EUR 3.5 million.

Talking about EBITDA. We can see clearly the correction in the fourth quarter. Those of you who have been following us for some time would probably remember that cycles were -- expansion cycles in the past 3, 4 years with corrections for 1 or 2 years and then the situation would change. This scenario we have faced in recent years tells us that cycles are quarterly. So we need to change the strategy in order to adapt to the reality we are facing. In 2018, the change happened basically in quarter 4, especially from September onwards, especially in Europe with a high impact pressure related to those provisionary safeguard measures. We saw -- in October, we saw things that were changing, thus that had an effect on the European market and that led us to cut production.

In Acerinox Spain and Columbus, we have made evaluation of the inventory and we have included a correction so that we have net realization value. This is EUR 22 million inventory adjustments. So the EBITDA has been EUR 58 million. It would have been EUR 80 million without the inventory adjustment. But this allows us to a certain extent to start 2019 with some peace of mind. We have the correction effect reflected in our accounts and therefore we start 2019 in a more favorable situation. And based on what we see in the markets and what we have identified with raw material, we are now starting -- about to start March and we are not expecting any needs to further adjust our inventory.

On talking about free cash flow. That's quite revealing, Bernardo mentioned that. The cash flows that was generated during this year has been EUR 171 million before dividend payouts. You see the changes quarter-by-quarter. In that sense it is important to say that we always emphasized how working capital plays an important role in generating cash flow, especially when trends change. In quarter 4, we have generated cash flow in a very positive way. Usually in our industry -- in our company, the measurements associated with lower performance are related at the same time with stronger cash flow generation. And this is related to what Bernardo I mentioned before. We have a strategic priority as we mentioned during the presentation at Gibraltar, the effect of our inventory adjustment in Q4 that has to reach EUR 114 million in free cash flow. When you see the evolution of cash flow, it is very different. In the first -- in the second quarter, we had an EBITDA (sic) [free cash flow] of EUR 114 million, and in Q4 is the same amount.

We have seen a cut in inventory and prioritizing working capital. Net financial debt is EUR 552 million. We would need to go back to 2013. At that time, we were slightly underneath, I think, it was EUR 530 million. Before that we would need to go back to 2003, the structure has changed. The balance sheet is much stronger than what we had before. This is a clear reflection of the robustness, of the solidity of our group.

These are the main highlights in the market. First of all, market volatility, huge market volatility. Asian overcapacity. And then input cost pressures -- basic supply and gases. As regards volatility in the market, this is the new normal. Since I was appointed as a CEO, I have been saying that this has been a very difficult year. Well, this is a normal volatility level. We would -- we all need to get used to.

Overcapacity, obviously, contributes to this. We have been doing things in China. They've been doing things in China to cut production levels. The measures they have implemented, limiting capacity -- installed capacity, we've seen a reduction of 3% in Chinese exports to the rest of the world. But we now have Indonesia. It's Chinese capital. But it's Indonesia. A 3 million tonnes added capacity. Well, the third million hasn't been completed yet. So there is huge pressure in world market -- on world markets.

Obviously, we would need to consider to what extent we can keep investing without achieving return on capital. But then people have different models. Protectionist measures are in placed in Europe and in the U.S. And then we have the conditions applied to Chinese businesses to invest abroad.

Differences in competitiveness, some people mentioned up to $700 per tonne. We could be exporting to the U.S., despite the 25% tariffs that are applied. So this is a complex subject. We don't have the key. These are the big questions. Allow us to say that we are suffering the effects of that overcapacity in Asia.

This year we've seen a reduction of that impact. But then we have the costs of energy and consumables. We keep talking about the high prices of energy in Spain compared to other countries. And in this case, we've seen increasing prices because of the monopoly in India and in China. During 2018, this has had an effect. But overall, if you add up those effects of the cost of electricity, the cost of gas, that has had an impact of EUR 64 million in 2018. EBITDA is very similar with provisions of EUR 22 million and extra costs of EUR 64 million. We need to acknowledge that, we believe.

And focusing on Europe, we believe that the provisional safeguard measures that were adopted have been very inefficient because of the way they were implemented. They were bad enough, as they were, and then they were not implemented properly. Then, when tariffs were imposed by the U.S. in March, we saw a huge increase in imports for 3 months -- imports coming to Europe related to the safeguard measures. When those measures were adopted on July 7th, there was a clause allowing materials which were already on the ships to reach Europe. So there was a second avalanche, so to say. Very high stock levels in the markets with high pressures from material coming to Europe without even being sold beforehand.

After a year of high import levels, not breaking any records, but certainly very high import levels, we've seen an increase of 8% in 2018 reaching a record high 34% of market share from China. If we have barriers in the U.S., safeguard measures in Europe, we have antidumping measures and tariffs applied in countries like Brazil, South Africa, and Turkey. So that overcapacity we have in Asia as an impact. And the situation in Southeastern Asia, which is why we have a presence has been huge.

How did we react? How did Acerinox behave in that situation? Well, first of all, I believe we are fortunate enough to have the largest factor in the group and the most efficient factory in the world, in the U.S., with fantastic performance. Secondly, Bahru has suffered the consequences of the conditions -- new conditions in the market in Southeastern Asia. And that overcapacity that has been reaching Europe gradually has had an impact of Acerinox Europe and Columbus.

So as I say, what have we done? As always we have done our best to adapt to new market conditions as quickly as possible. This is one of things that we believe should be acknowledged. We should be credited for that. We have adapted ourselves to the market conditions in a very quick way in order to follow the market. Cutting production accordingly.

We believe this is what we have done. We are focused on business control. We control business very efficiently, very effectively, talking about cash, debt and production, everything is well aligned with the strategy and we have been able to manage market conditions that have been changing very fast. The best results for a decade is terms of turnover and net results, and the second best talking about EBITDA.

Whilst caring for the interest of our shareholders and even improving upon the previous situation, this year we will suggest that there is an increase of EUR 0.45 to EUR 0.50 per share, that's 11% up on the previous dividend payout. As a result of all these measures, we see these figures in the chart, we had 2.4 million tonnes going down from previous year and that's 148 million tonnes underneath the maximum level reached in 2006. We are not far away from those record figures.

As regard to EBITDA, we have already mentioned that we would have liked everything seemed to be in the right direction. We were expecting to reach the end of the year with EUR 500 million in EBITDA. But that inventory adjustment has brought the figure down to EUR 480 million. Obviously, we are motivated to break that psychological barrier -- EUR 500 million.

As regards free cash flow, we have already mentioned that. You that this has been very stable in 2017 and 2018. Our financial strategy is focusing heavily on generating cash flow. Results are there as a relation of that effort.

Talking about raw materials, we have seen increases in prices of 20% on average. Prices have been increasing all the time. We have absorbed that increasing working capital, generating free cash flow before dividend of EUR 171 million. This has allowed us to bring debt levels down, as we said before, to reach 1.2 debt over EBITDA, which is quite healthy.

In order to be able to compare results with the previous year -- in order to understand the evolution we have seen. We have focused on the EBITDA that was achieved in 2017 that was EUR 489 million to see what has changed -- to see what changed in the market, what affected us and what changed in the market and the result of all those elements. So the EBITDA for the previous year and EBITDA for 2018, we have applied an inventory adjustment, as mentioned before, EUR 22 million. That has been a negative factor impacting the results for 2018.

Then we have effect of currency. This has been -- has had a negative effect. Obviously, NAS, the U.S. business side, has a considerable weight in all of our results. And the effect of the value of dollars in 2018 that was on average 1.18 coming from 1.13 in the previous year. So a slight depreciation which has accounted for some EUR 14 million when comparing EBITDA with EBITDA. The situation this year is different. So in that sense, the levels we have now 1.13, allow us to expect that we will not have that effect this year.

And then as Bernardo said before, we have seen the extra costs introduced by price increases in energy and consumables. We have done a quantitative analysis for that price increase comparing those 2 years in energy prices and consumables and that accounts for some EUR 65 million. So if we add up all those elements, we have been limited compared to the previous year just over EUR 100 million. On the other side, we've seen some positive factors. We've seen increases in sales. We have sold 2% more than the previous year. And then base prices in the U.S. have been increasing gradually. So in Q2 and Q3, we saw price increases in the U.S. market, and that obviously is beneficial. Although, in Q4, the strong corrections in Europe and Asia have mitigated that positive effect. Overall, we have had EUR 22 million on the positive side.

And then we have business actions which are a reflection of our commitment. So the external factors that we cannot keep under control, we need to offset with whatever we can do to minimize the effects of increases in costs. These are the items that have a more direct impact on cost increases, and here all production departments are focused on offsetting those increases that were beyond our control by reducing the costs we could indeed reduced in the area of production.

We've made an extraordinary effort this year in terms of efficiency in raw material supply. We have achieved considerable savings in raw material supply. And we've been talking for many years about how important it is to have Excellence Plans in place. Those plans we have been working on for many years. And that has an effect on the P&L account. So compared to the previous year, the effect of the last Excellence Plan has allowed us to achieve a more positive situation. Therefore, giving us an added capacity or ability to face those negative elements. So we have reached that final EBITDA in 2018, EUR 480 million, very close to the one in the previous year, despite the negative elements that we have seen outside of our business areas.

All of that has had an impact on cash flow. So starting with an EBITDA of EUR 480 million. As we said before, we have had an increase in working capital by EUR 87 million. So we've seen reduction in cash flow because of the increase in working capital, basically because of all those things we mentioned, price increases in the U.S., price increases in raw material, nickel going down on average prices, changing by 19%. Financial charges, well, they are not too relevant, but it has been aggregated here.

In 2018, we've been paying taxes with an operating cash flow EUR 326 million in 2018. And then payments for investments, CapEx EUR 155 million with a free cash flow of EUR 171 million. After dividends payout of EUR 128 million, we achieved free cash flow of EUR 43 million after dividend payout, leading to that reduction in net debt.

On this chart we see the net financial debt 1.15x, on debt over EBITDA. Once again, please take a look at the reduction in net financial expenses in EBITDA that's been EUR 9 million. But we have done better than the previous year with EBIT. We have seen a significant reduction of operating expenses reaching a result which is better than the one for the previous year. And then tax amortization about 25% in Europe, South Africa and the U.S., letting -- allowing us to reach a result for the year which is better than the one from previous year. And that has to do with the production and with the changes we did in net financial expenses.

So we'd like to highlight the strong control that has been mentioned before regarding the operating expenses items and personnel items. In that regard, you may see the evolution there. Despite the negative inputs we mentioned, the operating expenses from the year before were EUR 629 million that went up by less than 1% EUR 634. And in personnel we went from EUR 392 to EUR 396 million with an increase of EUR 4 million. So both in operating expenses and personnel expenses, which is EUR 1.03 billion, the increase is EUR 9 million. So less than 1%. We've had 0.87% of increase for those items that are probably closer to our control, therefore we may offset the increase of the negative inputs.

And you may all know evolution in the last few years and our strategic belief in the group to build our factory in the Asian Southeast. We Bahru Stainless, a very -- of entire factory, very efficient with a very high quality production. Those working in the market that are used to these circumstance. We know have the lowest prices and with an overcapacity situation that exists in the market and mainly in the whole Asian area.

As you may know Bahru, even though lately have been generating or contributing positively to the EBITDA at the group level. Even NAS here contributed positively Bahru itself in the P&L account and this year we've had positive contribution in the EBITDA of -- to the group until October. The collapse of the price is that took place in the last part of the year meant that in the last quarter Bahru's EBITDA has been slightly negative. And at the year closing, as every year, we proceeded to reassess all the group subsidiaries that are having negative results or that may show some impairment or attrition.

And here we -- in these assessments we try be very conservative and this year we are having extremely conservative in the light of the uncertainty in the market. And in this regard we must mention that there is an excess of capacity in the area. For many years we have said that the Chinese overcapacity situation was getting balanced increasingly in China.

In last 2 years, there's been a capacity increase that has taken place in Indonesia that would probably get solved. But it's particularly followed by Asian manufacturers unlike ours which is a gradual implementation of the new production increases, those implementations for new plants are very aggressive. Therefore, the market is oversupplied temporarily.

We need to give time for that overcapacity to be absorbed. In that regard there is a strong available capability in Southeast Asia. Mainly, now in Indonesia that's need to be absorbed. So even the factor of that overcapacity links to the low existing prices in an area. And the new added factor that we have this year that reinforces everything we said before is that eventually we have that play of fees -- between different areas and customs fees. So being a global player has certain advantages, but there are differences in different areas.

And regards some barriers in the USA and Europe, mean that there is more material available in the Asian area. And therefore we have an added volume on pricing as we have mentioned. So with these elements of uncertainty we have been a very cautious and conservative in our estimates and projections and budgets from now to the future.

And to get rid of any criteria that we might consider more subjective or -- we went to external sources to give validity to our price projections and to also give validity to the strategies of Bahru regarding thickness, market penetration on the new, production times. So we have done a very conservative exercise on budget in the long term with added factors introduced in possible downward cycles to make sure that we are doing a very cautious valuation of our investment in the Malaysia factory.

And even though or even further, we did a higher stress test in the light of these high uncertainty and we have applied these probability scenarios to make sure that in that regard we could have a cautious assessment. The result of that evaluation is that the flow generated by Bahru forward-looking show [nexus] of accounting value in their assets. We do not need to attrition the assets in Bahru, so there's no effect in the -- in its P&L account or in the year-to-date figures. The losses are reflected in the whole figures so we didn't need to make any correction.

And just out of caution in the result on that exercise, we need a value correction in the value of the investment of their holding company, Acerinox, S.A., in Bahru Stainless and we corrected that value in EUR 155 million. I insist just for the value of the current company doesn't affect the results of the whole group because it's not necessary.

And then as an additional measure that has been produced at the end of the year. We show the restructuring of Bahru Stainless. These measures do not affect cash. But the value went to a capital increase and in that regard everything has been framed in the new situation in relating Bahru Stainless.

Nisshin Steel left the capital of Bahru Stainless. We think the addition of Nisshin Steel to Nippon Steel as we announced -- bought the stake in Nisshin Steel, so 90% of Bahru is now the property of Acerinox. In the situation of Bahru, which that regard was a small investment of social capital financed from the holding company and what we did there was to capitalize by covering a part of the intragroup loan that Acerinox has had with Bahru Stainless by capitalizing it now that most of the capital belongs to Acerinox.

And therefore yesterday in the board, that we had on -- a few days ago. On February 25, the board agreed to have a capital increase of $332 million which means converting part of the debt of the group in Acerinox with Bahru to convert it into capital. As expressed in this slide, it doesn't have an impact on the consolidated results and to those effects on the technical bases for creating the budgets and all the detailed items are in the report. So if you have an interest or you need more knowledge on this that is on point 1.8 of the report published on the website.

And regarding the usage of capital and the capital allocation, you may know that we have a continuous investment culture in the group. The recovery in investment in the whole set of factories is usually quantified around EUR 40 million or EUR 50 million and throughout the year the investment have been EUR 144 million. Here we have different immobilized assets, here we have the investment payment cash flow. But the whole lot of investments for the year has been EUR 144 million which refer to the investment with lines, the new coil build up line, and the new lines of Acerinox Europe with the half capitalized investment in 2018. And the flow allows us to keep the high investment as well as keeping the dividends to shareholders and keeping -- increasing the payment.

In the light of the new solidity of the group the broad at the end of the year decided to increase its dividend by 1% from EUR 0.45 per share to EUR 0.50. And it was agreed to have a share buyback program. Where the objective of the group in the long term is to offset the dilution effect after 4 years of this group dividend. Keeping the shareholder payment and modifying the criteria, so that shareholders may decide between cash dividend or as group dividend. And that dilution effect is something we want to correct. There has been our first buyback program of 2%, so those can be amortized in the general shareholders meeting that will take place in April. So this is just the first stage, and then the board will decide depending on the market circumstances when to do the next stages of the share buyback program.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [4]

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So to continue with same slide, I should mention that we need to keep being committed with investing in our factories. And in that regard, we have new projects. We have new projects and projects to improve the existing lines. In 2018, we have invested EUR 144 million that -- as Miguel was saying, these are immobilized assets, and in increasing those assets. The other part will come in the next few months in a part from the large investment which we've done.

We're building a coil build up line at NAS because that increases the production of hot-rolling and it lowers the costs. We're also working with Ladle furnace for Acerinox and Columbus to increase the receipt of steel mills and the quality of steel to improve production productivity. And we are having an investment on Slitter that will help us have more finished products from South Africa without going through service production centers.

So we have made promise, we need to keep renewing our factories. This year we revamped the AP-3 line Acerinox NAS which is a line from the [APs] and we need to think of modernizing our first U.S. lines. And we're also researching how to modernize the AP-1 lines and [and build one] to give them the latest technology in our sector in the steel.

The mechanical part of the equipment does not age, when it electronics and controller units do age. The cylinders and the control boxes are the same. But we need to have all modern media that we have nowadays to control the process. And the process control is what we have increased overseeing and putting out central strategy through the Excellence Plans. For 10 years we have been working with these Excellence Plans, they have helped us improve a lot in competitiveness. They allow us to have interesting margins in very complex market situations.

In the latest Excellence Plan with target of EUR 50 million, we had EUR 27 million in savings after sacrificing many of the plans objectives due to the market situation. The factories are not reacting well to the production stops. In that regard we have lost a part of what we have in the last half. That doesn't mean that we lost the know-how we have in that way of doing things that we'll keep being applied to the following years. And what we can see here is of the Excellence Plans imply improving the usual handbook and processes, but things will change.

And here we're going to talk about digital transformation. And please allow me to talk a bit more about this topic because we all hear about digital transformation, but we don't quite know sometimes whether it is useful for everyone and who and what needs to be transformed and whether we need to change the business or what we need to do?

They are very interesting modern things such as 3D printing. But I don't see people at home getting ready or getting their own utensils with 3D printing. That's not yet a reality on a daily basis. Our business model is as it is and need to use all tools and technologies available to improve. So we have a very uncertain business and very difficult on the outside. But the complexity is rather inside. The factory complexity is in the millions of data we need process and the way in which we process them.

For example, as in the seamless operations such as like a continuous roll is very simple or seems simple. But if you look at the type of seal, the chemical composition, the temperature that is being put there, the distribution of the temperature, the composition of the factories and the elements that are expected there, if you put everything together and look at all the uncertain elements in that production, eventually you'll get or you have a big data the advance data analysis. That's what we have tried to do and that's what we've been researching and preparing the last few years.

In that regard, we've seen that in many projects. We use some big data to use the quality of micro elements in steel mills, in the hot rolls and different lines. So in most areas of our business we have a field to apply advance data analytics. Just to give you a figure, in the USA, we're getting about 45,000 signals in real-time that every (inaudible) and silo interested in those signals use, but they're not used altogether. Altogether, we use about 3,000 or 2,500 or so we have a great room for improvement because here we can improve quality with predictive or automotive quality by automating the inspection. We have artificial vision to look at the line quality that a human eye cannot see because they're so quick.

And we can have that artificial vision to know when elements will attrition. And we are sensorizing our lines so that we can anticipate problems and faults. We're using advance laser techniques to know when we are working on the metallic or non-metallic part of slab. And we're using all elements we have available in local united projects from Madrid in our factories with dedicated teams. So we only do different works, not double up efforts. And we are having great efforts in all fields, including commercial, research, transport logistics, everything in general. And we just needed something that gives a backbone to that.

That's where we need to investigate to know which is the answers that gives a meaning to the whole digital transformation, not just a whole set of satellites. And we need to give a big turn to our way of working, putting programming at the center of the business with 360-degree planning, visibility on the order entry and the need for raw materials and the production lines. This can be achieved with the algorithms and new techniques and we're going to have algorithms to optimize the production capability.

It's very important to the company's strategy in always making sure that materials goes through lines with regard to achieve -- to have better quality costs and productivity. So we're going to have the factory planning at the core of our business because anything else that we do leads to the same thing. If we improve quality, we'll get better what our customers need and we'll get better material and if we do it more quickly and more efficiently, we can occupy the lines and more material for our clients. We'll increase our sales and the quality of our products and the margin that we may obtain from them. If we're able to detect faults before they take place, we can use the lines for longer to produce more and sell more. So that leads to the same thing in our business and we just need to focus on how important it is to be productive and efficient in what we do and these is the access.

So what have we done? Well, we need to give a meaning to these things. And we need to be sure of what we do and be committed in what we do. So digital transformation with this new planning model and this new culture needs to be at a core of our strategy, at the core of our business. And therefore we want to announce and present today a project that we're very hopeful about, that is Excellence 360. Because somehow we want to be faithful to our principle of Excellence Plans. We think that it has become part of our culture and it has really allowed us to improve a lot and it is 360, because we want to improve us in timing in those fields with a general perspective. We don't want to optimize silo-by-silo. We don't want it to be the sum of many in the network. But we actually want to optimize businesses as a whole and based on efficiency, margins and quality improvements and metallic deals, we are going to launch this plan that comprises our business areas.

Production, which has a big weight in our business and also focusing on the reliability in our processes, a quality of our process and the improvement of maintenance through productivity techniques, increase in productivity, metallic deals and consume those materials to make a sale. So have those resources to basically obtain a good tonne of steel to give to a customer. In this field, we can save EUR 63 million as well as that 50% of the plan.

And these leads -- all these production improvements lead to better sales. We'll have more material to sell and opportunities to manufacture better material, better quality and keep improving for our customers. Commercially, we will see savings of EUR 26 million, that's 21% of the plan and we can get better reliability and organize better all of our supply chain. We can have better logistics, better lead times in optimize those stock.

Therefore in supply chain, we have objectives of 25 million improvements. It is not just savings actually just liking in Excellence Plans. This is improvements of the EBITDA in general. And we can see and we think that we can improve in supply chain in EUR 25 million, which is 20% of the plan. Then having better visibility, we can have better raw material purchases, with soft spot purchases, everything will be better coordinated and we can keep looking for better and cheaper materials. And these may yield EUR 11 million, in addition which will result in 9% of this plan.

In this case, 2 years is little and we want it to be part of our culture, of our strategy and we want it to be a dynamic project. In the first estimate from the 50, we can save EUR 125 million per year in a recurring way. And little by little, we'll achieve our objectives that we think it is dynamic plan that will be extended beyond 2023.

And as we get to know these techniques better and as we deepen in this research, we'll be able to give more ambitious results and objectives. And the first part is basically an Excellence Plan. Where we can improve there is basically -- we could improve if we have launched yet another Excellence Plan, but little by little we'll have there everything we have.

And with new research and new systems that's why we have these plans and not a different plan besides what we had. Because as we said, everything leads to a same thing. We need to be productive, we need to be efficient, we need to use our resources well and we need to be as competitive as possible producing at a cheap cost, competitively to get the best market quality and we will focus on that. That will become the core of our strategy. And from now on we'll stop talking about Excellence Plans in our presentations and we look at the response that we got to through this new plan Excellence 360.

And here to finish, we're talking about the future. I'd like to give you a few hints about the beginning of the year. We're just beginning, we have little information. January has been the continuation of what we had of the market [stopping] the fourth quarter. But at the beginning of the year, the safeguard measures published on January 1 are working very well so far. Imports in Europe, in January, went down by 30%. So far measures are working well. Safeguard measures here are much more positive. First of all, we didn't transfer amounts from the former plan to this new plan or to these new deadline.

And secondly, because we were afraid of getting products out of these measures, but along the year that didn't happen. We've actually added them. And now where you are seeing the safeguard measures in the place, a big place of stainless steel, we wanting to do them per country. We've achieved 100%, but at least all countries are presenting more than 5% of imports in other than quota. That is to countries that have raw material exporter such as India with Jindal or Korea with POSCO. This will be managed in a software, because they have the wrong quota for managing the -- and there's only one country which is a wrong one, and maybe will more problematic because we have (inaudible) and several large production centers. That is a much smaller amount than maybe in competition here to see who gets the largest part of this party which is country share.

And there's a group of countries in miscellaneous which is not significant, there we have Japan and that is not too important so that we're saying. It is important, however, to say that in the countries more than 5%, we have a USA that doesn't feel this quota. In the USA, they have good market conditions and now exporting to Europe. And there's another country of miscellaneous -- another group of miscellaneous country or developing countries under 3%. In 2 of them, we think the demand is still a rational way which are Brazil and Mexico.

And other one maybe the question here, but maybe saw these measures which is Indonesia. So Indonesia in this Group and we haven't seen this 3% in the reference period. But now in the second quarter, last year, they might go above 3%. It will go above 3% just in that quarter. But as soon as they go again about 3%, things will change. Things are different in South Africa, the safeguard measures are working better, inventories have done. Europe, there are normal levels now. And in the U.S. they are still a bit high, but we think that by the end of the quarter, they'll be regular or normal level.

Consumption is at a very interesting level. We cannot talk about large consumer increases, but we should be at a level of last year, which has been good. I think that these whole countries do not see any clause in the USA for 2019. And as usual, the situation together with restructuring of nickel that has been going up since January, main improve pricing. Nickel is going down. It will go up in March. Europe and the USA may go up again in April. So the situation here is quite optimistic. But all these measures and all the circumstances will be seen mainly in the second quarter of year. Meanwhile, the only thing we may say is that already in the first year, we aim to improve the EBITDA of the fourth quarter last year.

And that's all from me. We open the Q&A session.

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Questions and Answers

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [1]

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Thank you very much for the presentation. We're going to begin with questions from the room and then we'll open the round for telephone questions. So is there a handheld microphone?

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Unidentified Analyst, [2]

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It's [Michael] here. One, just on the guidance, it's relatively straightforward, I think, for you to talk to Q4, if you just literally add back the inventory adjustment, and you said you don't expect any inventory adjustment in the first quarter. To give us a better sense of the actual directional sense of the core EBITDA, Bernardo and Miguel, could you tell us how the monthly EBITDA evolved through the quarter ex inventory adjustments. Obviously, things seem to have fallen off a cliff in October. But can talk a little bit about November, December, then potentially January, February, in terms of the directional sense that you're seeing? The second point, just on the guidance therefore. When we talk about a better Q1 and Q4, is that better than 58 or is it actually better than the 80, which is adding back the one-off? And can you talk a little bit about given your visibility into March, without giving guidance your feeling for the second quarter relative to the first quarter, should that be better? I guess it probably should, but your thoughts on that? And then final part of the question, just on capital allocation. Recently we've been focusing very, very much on debt reduction and shareholder returns. You're getting down to a debt level that you've talked about Miguel, we haven't seen for quite a long time. Is there a target debt level that you're comfortable with? Is there really a formal shareholder return policy in terms of dividends and potential buybacks. And given where you are in cash generation that's sitting on balance sheet, would you potentially entertain the idea of M&A, acquisitions if something interesting came to the market?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [3]

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Thank you. Mike. Regarding the EBITDA for the first quarter. In general, it's true that we have, as explained, we have made corrections on EBITDA on the fourth quarter for the inventory adjustment. As I explained before, as much as such inventory actually is in value and in view of the trend in this first quarter, the raw materials are going up, the extra alloys should begin to have increases starting from March, so we feel very, very comfortable that at the end, probably inventory adjustments shall not be needed. So in this fact when you consider the improvements, I think we have that comfortable level, which is obviously the one way we are having absorbing through the inventory adjustment. In addition to these facts, we have the situation in the States is very, very robust. As has been explained, the fourth quarter in the States normally is a 2 months quarter in this regard. This first quarter shall be a 3 months quarter, so the contribution in the States shall be higher. In addition to this, we are not seeing farther deterioration of prices in Europe. Probably we think that at the end of the quarter -- maybe for the second quarter, as much as the activity is going, it's going fine, probably recoveries also as a consequence of the increase in the extra alloy, so this shall come probably more for the second quarter. But at least in the first quarter shall be stable. Other inputs of the modest cost that we have in talking about now appear to be stabilized. So we definitely remain comfortable for more than improvements in the first quarter EBITDA, keeping on mind still that as much as 50% of our sales are well oriented in the States. The sales in the rest of the area is still far from based prices -- from low prices. But we don't think there shall be further correction on that. So in principle, we remain optimistic for the first quarter. In this huge cyclicality, now each time make projections on long-term basis appears to be a risky business. But it's true that what we are seeing from the start of the year it makes sense that the first quarter is going to be substantially better than the first quarter. And the basis from now, the second quarter in addition of these, we shall see some improvements in prices. And also, another fact of difference in the first quarter is the high levels of activity. So the States is keeping good activity, but also in Europe still the prices are horrible, but with high activity. So at the end this obviously should also contribute. So we keep certain level of comfort in the first quarter. But we assume that improvements should come later on.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [4]

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Good morning, [Michael]. In order to be a little bit more precise with how I would answer, I can tell you that the worst month of the year was November. So we suffered all the -- most of the correction in November, since November we have started to improve and the situation, we see the ramp up now, so. I think your last -- your question was related to debt and cash generation and capital location. I think regarding the debt, I think, we already said that in a very volatile business as stainless steel, we want to be in the safe side. And the safe side for us now it's been below 1.5x in the debt to EBITDA ratio. I think this is good and now we are in 1.15x. So I think it is more original we are in the safe side of this target. Capital allocation, you know that we always have enough projects to modernize our factories, to improve the new production lines and this is how our traditional study. But this is our traditional strategy because this is the strategy that gave us -- what is giving us in our history, a better return. I think -- what I think is that the Acerinox is always focused on capital return and the return on the investments. If we can do it in organic growth with our lines, modernization, excellent plans and all these things, we'll go ahead with this. But it's not the first time that we look something outside Acerinox if the capital return is better than what we can get in our organic growth. This is -- we did that in Columbus and of course we always studied this.

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [5]

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Any more questions from the floor?

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Robert Jackson, Grupo Santander, Research Division - Equity Analyst [6]

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Robert Jackson from Santander Bank, and I have a question on your sales mix. Last year, you had a new line and improvements in (inaudible), what impact did you detect during 2019? Very limited. So can we expect a more significant impact in 2019?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [7]

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Well as regards the line in the U.S., during 2019, we have been developing or we have been complying with all validation requirements from all of our customers. Customers by BA materials, especially home appliances have validation procedures, which can be rather complex. They take some time. In 2019, we have been making an effort to comply with these requirements rather successfully. Obviously, U.S. vendors are very interested in buying [BNA] material from the local market and we have developed everything. In 2019, we will start to achieve those benefits, when we start supplying in a continuous way to the main home appliance vendors, especially Whirlpool, General Electric, and the Bosch Group. What the AP-5 line can contribute with in Spain, in Europe and what the new line -- the old AP-3, which has been upgraded with many mechanical elements. We have now achieved a quality, which is quite similar to the one in the new line. This should reflect in the results we achieved this year. We haven't finished the things we have been doing with our supplier, but we are -- we haven't used a higher level of quality. The plant director could tell us about the new savings and the new improvements in quality that have been achieved.

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Antonio Moreno Zorrilla, Acerinox, S.A. - Former Production Director [8]

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Well, the new AP, AP-5 of Acerinox in Pulmones we started producing in March. In 2018, that was 120,000 tonnes. That's between 15,000 tonnes and 20,000 tonnes. On top of that for 2019, we are proud to say that this is probably the best line in the world in its segment together with AP-3, it is delivering an exceptional level of quality. The incidence rates we have registered compared to the previous season has been reduced by a factor of 8. Energy efficiency of this new line which gave us performance levels, which doubled the previous figures. Before, we didn't even reach 30% in efficiency, and this one reaches more than 65%. So cost reductions are rather positive. And then, this has allowed us to target a niche market that we couldn't supply to before. We will now be in a position to go for thicknesses of 0.3, 0.4, 1500. Until now supply of these materials was limited 06, 07. We have an important market niche to reach out to and this -- the line hasn't been commissioned yet. This is a fully automated line. We need to ensure that everything is properly installed. But results are very encouraging. Let us hope that the financial savings that can be achieved with his new line are significant. We don't need to take any material to the cutting lines and that should allow us to reach a very significant cost savings of around EUR 25 to EUR 30 per tonne. Until now, we are rather excited about the results we have achieved. So improvements will come in 2019 and they will be important.

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [9]

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Any more questions from the floor?

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Unidentified Analyst, [10]

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(inaudible) from Kepler. I have 3 questions. The first one relates to CapEx for 2019 related to the projects you mentioned Bernardo, I wonder about the figures. I was surprised to see '18 in your chart 170, 175 that was a figure own my mind. And the second question talking about buyback. As I understand it, we were focusing on doing 2% then reaching up to 10% to offset the effect. So when will that decision be made to go for the second step, above 2%? And then some follow up on the guidance for quarter 1. Miguel, I'm not too clear, perhaps it's me. But anyway, when we talking about EBITDA being better in Q1 compared to Q4 is that 80 or 58, what are you referring to?

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [11]

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Miguel allow me to answer the first questions. The CapEx we had for 2018 was EUR 170 million. And if we have not reached our figure it is not because we have postponed anything, it is simply because of investments that were not made. We were expecting to make them and they will come through in the first months of this year. Investments are the same. And for 2019, the CapEx -- we have authorization for basically the same. We're talking about EUR 170 million. We believe that therefore the modernization or upgrading of new lines that gives us enough comfort. As regard to your second question, well, it was approved at the board meeting -- the strategy was about amortizing the shares that were issued in recent years, altogether accounting for some 11%. The first phase is 2%. Where we will be submitting different tranches to the board approving these projects, these buybacks, so that we can then end up amortizing all those shares.

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [12]

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As regards the guidance for quarter 1, indeed, the answer was not too precise. On that note we only have results for January so we don't really know what went on during -- in February and we also have to take into account -- and in recent quarters we have had to be cautious. So this is about the leaving messages. The messages have been delivered. It seems that this will be better 58 than last quarter. We are not expecting any corrections, any inventory adjustments. Related to raw materials, we have had any inputs on cost increases. The U.S. will contribute for 2 months so we believe we are reasonably comfortable. We will have to wait of course, so it is very complicated to have a complete forecast until the end of March. But factors that have penalized us in the past will not be present in Q1 of this year.

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [13]

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Any more questions? So we now move on to questions from the phone.

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Operator [14]

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(Operator Instructions) Francisco Riquel from Alantra.

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Francisco Riquel, Alantra Equities Sociedad de Valores, S.A., Research Division - Head of Research [15]

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Could you please elaborate for different markets in the U.S., you said that our inventory levels are high, I believe that was an obvious problem in Europe. But I was surprised to see the same situation in the U.S., bearing in mind that import levels are gone down and your production was under control. So I wanted to know whether there are any other offerings from other producers or there is a weaker demand than expected, so if you could elaborate on that? My second point if you could elaborate in Europe. Since the safeguard measures were implemented it's been never a short period of time, but if you could tell us a little more about that. What have you seen? What do you think we can expect? Are we talking about higher volumes, perhaps? Are you expecting to benefit from that is this related to prices? And talking about prices, if you could tell us where we come from and where we go to? And then point #3, outside Europe and the U.S., I've seen the figure for -- minority figures increases significantly. I think losses come from Bahru, you mentioned that before. But if could tell us about Columbus a little more to see where it is and whether there are losses.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [16]

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Good morning, Riquel. If I may start with U.S. Well, it depends on local production because inputs are under control. The U.S. market has suffered the effect of too much optimism last year and combined with the problems with nickel, led to significant reactions. But we do know is that end customers are strong, consumption levels are strong, with the except of the car industry high levels were going down. We see the food industry doing quite well, lighter trucks are doing okay, oil and gas has come back, chemicals, paper, petrochemicals these are at very high levels. So perhaps with the exception of home appliances and the car industry the rest growing to full rate. What is happening in the U.S. is that end consumers are behaving quite well, very strong, but warehousing -- the warehousing industry has doubts. These are doubts we all have. First is the duration of the economic cycle. A potential downturn in the U.S., our customers don't expect such a thing for this year. They are optimistic. But everyone talk so much about a potential downturn then we should get ready for that. And then we've seen reductions in raw materials, we've seen a decrease in raw material prices in alloys and other materials. And then there is a certain -- certainty as regards the result -- the consequences of the exception for stainless steel from Indonesia in the joint alliance with Tsingshan and Allegheny. These 3 factors together have led warehousing companies to be the short term in the focus. When things go wrong they always seem low, when they go well, they always seem high. But the joint venture or the exception to those things in Indonesia is underway. We are expecting the final decision. We expect for the end of February, but after 55 days that the U.S. government stopped and said nothing. We're still waiting. The last thing we heard this week is that whole exceptions are being rejected for carbon steels and special steels. So it is clear their manufacturing has to be U.S. based. We expect we will achieve the same for stainless steel. We have sales director here, so I believe he is in the better position to tell you about the details of the European market.

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Daniel Azpitarte Zemp, Acerinox, S.A. - Former Commercial Director & Sales Director [17]

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The safeguard measures in Europe, they were announced on February 1, coming into effect on February 2. It's been very short time since then. So imports monitored through these measures are under the quota established. None of those countries has reached this quota. And then we have the fact that the imports in January, as Bernardo said, were 30% under the same month in the previous year -- in January of 2018. That leads us to think that import pressure from those countries, included in the safeguard measures will be maintained, will be kept under control and under the average value or under the value that was achieved last year. That has had an impact on the portfolios of the European producers, especially in Acerinox Europe. And obviously, on those of our competitors, especially since the second half of December, and since the beginning of February, an increase in our portfolio in South Africa. As Bernardo said, these are excluded from these safeguard measures altogether. So the activity level for final customer -- foreign customers is good. Imports are going down and it all seems to point out that we should be able to correct prices, which by the way at, at a historical low. Even under the values that we reached in the worse parts of the crisis in 2008.

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [18]

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As regards Columbus, of course, they are making positive EBITDA and positive overall result after taxes. So talking about EBITDA, because of the general situation in last quarter, we mentioned before, that the only company in the group with a slightly negative EBITDA is Bahru Stainless. Columbus is a very competitive plant, but the local market for Columbus -- the South African market is quite relevant, which was about 120,000 tonnes. It's shown better behavior this year. In the first part of the year there was certain amount -- a degree of political turmoil in South Africa, but this has now become more stable. This is being affected by prices in Europe, so Columbus is a plant in the group that can target Europe or Asia. When there are storms in Europe or Asia the contribution from Columbus is obviously smaller, so the price situation in the second half of the year has an impact on margins. And then overcapacity in Asia and the low prices in that region, we are talking about $600 under the levels that we have reached in the U.S. So obviously, Columbus is competing in Asia. Columbus is supplying black reels and products to Bahru in market conditions that are very low -- prices are very low. So the 2 geographical areas that are targeted by Columbus in the second half -- had a very significant price correction in the second half of last year. But let me say it once again they have positive EBITDA and their P&L is positive as well, as all the other divisions in the group, except for Bahru, which has a slightly negative EBITDA.

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Operator [19]

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The next question is Francisco Rodríguez from Sabadell Bank.

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Francisco José Rodríguez Sánchez, Banco de Sabadell. S.A., Research Division - Research Analyst [20]

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I had a question -- well 2 questions really related to prices. Could you elaborate a little bit on the evolution of prices in Europe? And tell us about what has been happening in the first quarter, including projections for prices for the second quarter. If you could add any comments to prices in the U.S. and whether you are expecting the possibility to increase prices over there.

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [21]

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Francisco, good morning. If you were in one of our meetings -- in one of our stainless meetings, the legal advisor would have told me immediately not to respond to your question. We cannot talk about prices, we can talk about outlooks. As we said before -- but we can talk about past prices. In the U.S. they have remained stable. Since the summer we have seen increases in prices since tie-ups were approved, 25% in March. We have increased prices up until the end of June where we had a price increase for customers with whom we had made a deal in the first half of year and prices have remained stable with no tensions despite the weakness -- the seasonal weakness in the last quarter. In Europe, the situation was quite poor in the last quarter. We saw levels that we had never seen before. We saw operations of around EUR 700 base prices. These are no market prices. These are special operations. This is not what the market dictates and we know that when you have inventories under control, when you have imports under control, and you have alloys going up the effect of anticipating those extras from alloys leads you to a slight increase in base prices. Customers try to buy a bit beforehand in order to avoid that increase and we have to see what we can achieve with base price increases. The trend is positive, but we cannot elaborate on that.

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Operator [22]

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Ladies and gentlemen, there are no more questions from the Spanish channel. We now move on to the English channel.

The first question comes from Luke Nelson from JPMorgan.

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Luke Nelson, JP Morgan Chase & Co, Research Division - Research Analyst [23]

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Just couple of questions from me. Firstly, a clarification on CapEx. You've guided to EUR 170 million in 2019, but you said this is also some deferral of 2018 CapEx, so can you confirm that EUR 170 million also includes that deferral. My second question is on IFRS 16. Whether there is any impacts to net debt and also whether there is any uplift within your EBITDA guidance? And then finally working capital was strong in Q4, can you give us a sense of how much that was seasonable year-end effects and also your expectations into Q1?

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Miguel Ferrandis Torres, Acerinox, S.A. - Chief Financial Director [24]

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Thank you, Luke. Regarding the net debt at the end, obviously, what we are seeing is consistent cash generation and this is allowing us year-after-year to reduce in debt. The relevance of the working capital in all the cash flow movements of the group has its impacts. So in that basis we keep very comfortable with actual level of debt that we are achieving. All the basis allows us to consider that there is still rooms for relevant reductions, unless we enter in any other specific operation or decision or whatever. But in general, business as usual. We think that the levels of normalized cash generation should keep us reducing debt regularly. What for us is more relevant more than the pure figure of debt is the cost of our debt, and in that regard, we feel strong certainly satisfied. The net finance expenses of the group in the whole year is EUR 2 million this year, keeping on mind that we are reporting a net debt figure of EUR 552 million, the figure is amazing. In this regard, our treasury team makes extraordinary performance and at the end we have not only very, very low cost of debt, but we also make up very, very proactive management of the FX that at the end also contribute to reduce the -- all the finance expenses. So in this regard, what we keep as extreme control on that area and at the end, we feel very, very comfortable living with this range of debt. Bernardo was mentioning that at the end we may have some guidance that we feel comfortable in levels to debt to EBITDA of 1.5x, not too far ago when we had covenants in our finance. Today we are free of covenant with regard to EBITDA all over the group. But in those days the covenant was debt to EBITDA levels below 3.5x. Now I think we are ambitious enough to consider that we feel comfortable establishing our limit of 1.5x. So I think it is probably a proper indication of where can we go. And sorry, now, regarding the issue of CapEx. At the end, more or less the estimation of CapEX or the guidance we have in the range of the EUR 170 million, it may have some variances. And also in that regard, certain times we more or less have also the borders established in the year-end and this may have it's -- at the end, may have its effect. So on this regard, more or less, in some of the projections coming on place, the issue of delaying or extending need or whatever the enhance it's relevant. So it's not a substantial relevant. In general, for us, we feel very, very comfortable considering a normalized level of CapEX in the range of EUR 170 million, which is also normalized with the depreciation charge on a group basis. It may be some minor distortions 1 year to another, but in the long-term run, for us, EUR 170 million still remains being the proper figure for considering CapEX on the future.

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Operator [25]

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Ladies and gentlemen, there are no further questions in the conference call. I now get back the floor to the company.

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [26]

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We have 2 last questions from Bastian Synagowitz from Deutsche Bank. The first one is regarding Tsingshan. And he mentions, "In the last couple of years, there's been a lot of pressure in the market". But he understands that now its behavior should be more aggressive, since his presence in the market is more consolidated. So he's asking, "Whether we felt any change in that regard or whether we feel a lot of competition by him and by Chinese producers?".

And the second question refers to Bahru, to the impairment of EUR 155 million. He's asking, "Whether the investment strategy has changed somehow in Bahru Stainless? And likewise, even thinking of any side operation or any alliance with Tsingshan or final closure or any similar operation?"

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Bernardo Velázquez Herreros, Acerinox, S.A. - CEO & Executive Director [27]

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Regarding Tsingshan, as you may know over the last few years, it's been growing first in China and then in Indonesia and enhancing production capability of 10 million and this year they have produced 9 million, which has been the record figure and the historical record of any stainless steel manufacturer. I think they have around 50% of global -- 15% of global production. And Tsingshan followed different strategies. They consider themselves a mining company and first of all, they build a lot of steel mill using their knowledge of transforming nickel mineral in nickel pig iron.

And the first thing that happened with Tsingshan was that they had a strong exports of raw materials to the whole world because they're getting to Europe, they're getting from Indonesia to China, from China to other regions, and of course, is also they into Malaysia (inaudible) it's also buying from Tsingshan. But the pressure now is a bit higher. And they have developed a bit of cold-rolling capability. In Asia it has 3 million tonnes of stainless steel, they produced about 2. And they have developed 300,000 tonnes of cold-rolling in market and they know they don't have a commercial network, they have a few measures. So the combination of steel types, thickness, broadness, and weight at Acerinox is about -- has about 11,000 items monthly. And the specifications at Tsingshan is 40. So they only do one type of steel with basic thickness all same width and length. So if you want to have 300,000 tonnes of one single product in the market, which is already saturated, that has created distortions in that type of steel they sell and the others also want to sell their products.

So eventually we create that competition in the vessel products that they don't do. And maybe that's why it was a bit more felt. It's probably a bit more felt, having a bit of more market knowledge, they keep developing a convention that work that is very basic a moment, but they're using it. And I'm optimistic, I don't want to be overly optimistic, but I think things are going to be in changing. In Indonesia they have many problems and each place of production in the rest of the world, it's not easy. The U.S. rules are now close to them and maybe in China too. Because an anti-dumping case promoted by HSCO, Discover and 2 or rather 3 manufacturers of the state-owned companies from China has been accepted for processing, so the market has been limited. So I think that's positive because that -- from factory that they were building in India, and they said, it was going to be a comprehensive factory we'll not be a factory anymore.

We'll be -- just that [roller] in the Gujarat state where we were thinking of setting up a factory probably in Malaysia. This can't be place because it was the worst place ever to have a stainless steel factory. And they have stated that they're going to focus on the business of electric batteries -- the nickel mineral. In Indonesia, has a high content in cobalt, so they're going to try to transform something very rational instead of doing, which is to manufacture like they do now manufacturing pure nickel and then doing nickel sulfate for car batteries without mineral that have nickel and cobalt. They're going to try to manufacture directly dissolves or the battery in needs for an electric cars directly. So hopefully they'll be successful in that sector and they'll see the all sectors have more returns on -- returns that are same as steel the level market to follow its base.

And the other question was on Bahru. And regarding Bahru, we have made a strong bet on them, we think we have a great factory. Probably the most competitive factory in our group. We've always had a reputation for being competitive in every one of technologies. But NAS is the factory -- the most competitive in the world and Bahru is in most competitive coal running factory others are really not. With a great quality that our European customers are knowledge amongst the best in the world is not the best. Difficult situation is overcapacity we're experiencing. And our mission is to do the best for the group and to try to bring Bahru ahead. But if we have possible of any alliance or offer we'll need to access them as we should. But right now we're benefiting from these cheap products in the area, we are buying from Indonesia. And maybe in the future our steel mill at Bahru that we have projected might not be necessary because we already have it [Acerinox] Indonesia. But we're working on all fields and we'll see how it goes.

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Carlos Lora-Tamayo, Acerinox, S.A. - Head of Investor & Media Relations [28]

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Well, this was it from our side. Thank you very much once again for being here with us. And I'll just like to invite you to the first quarter results presentation May 13. And for those who are here in the room, hopefully you can join us for a glass of wine right after. Thank you very much.